Importance of crude oil in Nigeria's economy well explained

The importance of crude oil in Nigeria is massive because oil generates about 5.9% to 9% of the country's GDP and over 95% of Nigeria's export revenue. Nigeria is the leading oil exporting country in Africa and eighth in the world. Find out the benefits of crude oil in Nigeria and other essential details from this article.

Oil production funds numerous multi-billion investments in Nigeria. The government finances almost all developing sectors, infrastructure, etc., using revenue from oil production. Additionally, the sector provides jobs for millions of Nigerian citizens and has greatly improved people's living standards.

When was oil discovered in Nigeria?

Several international companies began exploring oil in Nigeria and its commercial value in 1907. Shell-BP (Shell and British Petroleum) got a license to begin its research in 1937. It was the first company to discover this natural resource in 1956 in the Niger Delta at Oloibiri, Bayelsa State.

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Shell-BP succeeded and drilled the first commercial oil in Nigeria in 1958. Nigeria's major reserves are the low deltas of the Niger River. Meanwhile, there are many minor reserves spread countrywide.

According to OPEC's report (Organization of the Petroleum Exporting Countries), the world has around 1,241.82 billion barrels of oil. Here are current statistics about oil in Nigeria:

Facts about the oil industry in Nigeria in 2022

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Oil production companies in Nigeria focus on the most productive oil fields in the coastal Niger Delta Basin. Nigeria extracts several types of oil of the highest quality, including Forcados, Esquavos, Odudu, and Bonnie. Check out the benefits of crude oil in Nigeria's economy below.

Importance of crude oil in Nigeria's economy

Nigeria has a total of 159 oil fields and 1481 wells in operation. The coastal Niger Delta Basin has 78 oil fields. Small unproductive fields accounted for 62.1% of Nigeria's oil production capacity, while the sixteen largest fields produced 37.9% of Nigeria’s petroleum. Below is a list of 10 importance of crude oil in Nigeria:

1. Oil production is the country's main source of revenue

Nigeria's oil revenue has totaled $340 billion in exports since the 1970s. Nigeria's major clients for decades are the UK, Germany, and China.

OPEC's Oil Market Report for July 2022, obtained by the News Agency of Nigeria (NAN), showed an increase of 5,000 barrels per day compared to the average 1.233 million BPD produced in May 2022.

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Despite the improvement in fossil fuel prices, the oil sector contributed 5.19 percent to total real GDP (N1.055trn) in Q4 2021 and 7.24% for the entire year 2021. The figure is less than the preceding year because high inflation has reduced private sector optimism and weakened consumer spending.

Nigerians hope the current economic situation will be short-term. Oil revenue is projected at N3.16 trillion, FGN Independent revenues are projected to be N1.82 trillion, and Non-oil taxes are estimated at N2.13 trillion by the end of 2022.

2. Oil is the main source of power for industries

Nigeria's cars, trains, and industrial machinery use petrol and diesel. In addition, most small businesses use petrol/diesel generators for lighting and operating machines.

3. Oil is a major source of energy for households

Most families in Nigeria use petrol or diesel-powered generators to light their homes and run appliances like cookers, washing machines, televisions, etc. Many households also use domestic natural gas for cooking and lighting. Families that use electricity still have generators as alternative energy sources during electricity blackouts.

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4. It promotes industrial growth and development

Oil is used to make many products for different sectors. Some of them are listed below:

• Schools: rulers, crayons, glue, book covers, binders, ink, cartridges, etc.
• Hospitals: binding agent for creams, coatings for pills, disposable syringes, contact lenses, etc.
• Fashion and beauty sector: clothing, fabrics, cosmetics like nail polish, deodorants, shampoo,
• Out shopping: shopping bags, credit cards, egg cartons, plastic milk bottles
• Home: non-stick cooking pans, upholstery, carpets, cling film, laundry detergents, dry-cleaning products, storage containers, etc.
• Building: roofing tiles, paint, pipes, insulating material, paint, etc.
• Transportation: asphalt road surfaces, bike crash helmets, bicycle handlebar grips, car and bike tires, etc.
• Office: computer hardware, diskettes, faxes, pens, printing ink, chairs, etc.
• Sports and entertainment: cassette tapes, camera film, artists' paint, trainers, football boots, shin pads, roller blades, windsurfers, etc.
• Farming: fertilizers, pesticides, garden furniture, etc.

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5. The oil industry attracts foreign investors

Foreign investors who want to cut the cost of importing oil as a raw material for their products establish manufacturing companies in Nigeria. Additionally, some oil mining and production companies in Nigeria are foreign firms.

6. It creates jobs for many Nigerians

Another importance of crude oil 194 is that it creates jobs for many Nigerians. 0.03% of Nigeria's 69.54 million labor force worked in the oil industry as of 2018. These were about 2 million people, and the figure has been increasing gradually.

Oil companies hire diverse professionals from petroleum engineers, finance and accounting specialists, offshore technicians, petroleum and wellsite geologists, heavy equipment operators, and more.

7. Oil production promotes infrastructural developments

The Nigerian government spends less money budgeting for road construction and renovation because they do not import oil used on asphalt road surfaces, fuel used by construction machines and trucks, or other activities that need oil or fuel.

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The same goes for other public projects, and the government also uses revenue from oil production for other infrastructural developments like building and expanding train, water, and aviation transportation systems.

8. The oil industry improves people's standards of living

Another economic importance of petroleum in Nigeria is that the sector improves people's living standards. For example, the government used oil production revenue to build and improve social amenities like schools, hospitals, police stations, recreation centers, and more.

In addition, people who work in the oil industry also make enough money to afford quality education, health services, recreation services, and more.

9. Oil production promotes security in the country

Households and businesses use generators for lighting at night. Others use generators to power their CCTV cameras, electric fences, and other security systems during electricity blackouts. Excellent security is one of the main boosters of economic growth.

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10. Oil production lowers energy costs and promotes energy security

A massive oil and gas supply lowers energy costs for the people. People and businesses can avoid high electricity costs by using oil and gas as main or alternative energy sources.

Additionally, a country that produces oil and gas in large quantities achieves energy security because it invests less in electricity, solar, and other energy sources.

NIPC road-map on how to maximize the importance of crude oil in Nigeria

The Nigerian Investment and Promotion Commission has plans (road-map) for improving oil production and increasing its economic benefits to the country. The commission wants to achieve these goals:

1. The commission aims at improving security and environmental safety in oil-producing areas

Oil facilities in Nigeria are constantly being attacked. The conflict in the Niger Delta (between Nigerian government troops, oil companies' mercenaries, and ethnic groups) began in the 1990s, and the "Boko Haram" terrorists usually attack oil pipelines, towers, and workers.

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Improving environmental security and safety will increase national crude oil production, investments, and infrastructural development in these regions.

2. NIPC wants to shift focus from oil to gas because Nigeria has more gas than oil

Experts say that the country has the potential to move from the world's ninth gas-producing country to the fourth position if it fully exploits this natural resource.

3. They want to reduce the importation of petroleum products by 60 percent

Nigeria will become a net exporter of petroleum products and value-added petrochemicals if it reduces the importation of petroleum products by 60 percent. Therefore, an aggressive revamping of local refining capacity through greenfield, co-location, and modular refineries is necessary.

4. NIPC suggests a review of old policies and laws in the oil and gas industry

The commission wants to split the Petroleum Industry Act into three bills for easier passage by the National Assembly. The new laws will focus on the financial and legal governance of the petroleum industry.

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5. The commission wants to create a suitable business and investment environment to accelerate Nigeria's income from the oil industry

Nigeria's primary oil investors are the US, UK, Germany, and China. PetroChina Corporation signed an agreement with Nigerian representatives to supply more than 30,000 barrels per day in 2005.

In 2006, China allocated $1 billion to Nigeria for railway developments, and the Chinese company China Railway Construction won a tender for railway construction in areas controlled by Chinese representatives. In addition, Beijing invested over $4 billion in Nigeria's oil industry in the 2000s, and PRC purchased a controlling stake in the refinery.

6. The commission wants to improve on stakeholder management and international coordination

NNPC wants to make Nigeria visible in global oil production by eliminating constraints on crude oil and gas production.

7. NNPC and its subsidiaries want an efficient and transparent oil production industry in Nigeria

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Conducting affairs in the national oil company more transparently will create more revenue for the nation.

Which oil companies are in Nigeria?

NNPC (Nigerian National Petroleum Corporation) oversees the operations of oil production companies and TNCs (transnational corporations) in Nigeria's oil fields. Local companies support the "Nigeriazation" policy in the oil sector. As a result, the government withdrew oil production licenses for 16 companies in 1999.

New foreign oil companies in the country do not have a joint venture with NNPC but can be technical partners of local Nigerian oil companies on the condition of the division of products. Here is a list of some established oil companies in Nigeria:

• Shell
• Mobil
• Chevron
• Agip
• Elf
• Texaco
• Ashland
• Consolidated Oil Limited
• Dubri Oil Company Limited

List 5 importance of crude oil to Nigeria

• Oil production is the country's main source of revenue.
• Oil is the main source of energy for industries.
• It creates jobs for many Nigerians.
• Oil production lowers energy costs and promotes energy security.
• The oil industry improves people's standards of living.

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Oil-producing states are yet to fully experience the importance of crude oil in Nigeria due to corruption, high insecurity, and other factors. As a result, the country develops at a slower rate than expected. The government is trying to find better ways to manage this natural resource and eliminate factors affecting it negatively.

READ ALSO: List of natural resources in Nigeria and their locations

Legit.ng also shared a detailed list of Nigeria's valuable natural resources and locations. The country is blessed with coal, gold, zinc, and more minerals.

Information penned in this article is essential for local and foreign investors. If you want to invest in Nigeria's mining sector, find out where minerals are located.

Source: Legit.ng